Home Depot's sales continued to fade during the fourth quarter as the country's largest home improvement retailer feels the impact of high mortgage rates and inflation on its customers.

While quarterly results topped Wall Street expectations, the company's sales expectations for this year weighed on shares early.

Shares slipped more than 2% before the opening bell Tuesday. Rival Lowe's, which reports fourth-quarter earnings next week, fell more than 2%.

Home Depot reported fourth-quarter sales of $34.79 billion, down from $35.83 in the prior-year period. That still beat the $34.55 billion that analysts surveyed by Zacks Investment Research expected.

Sales at stores open at least a year, a key indicator of a retailer's health, fell 3.5%. In the U.S., same store sales declined 4%.

"After three years of exceptional growth for our business, 2023 was a year of moderation," CEO Ted Decker said in a prepared statement.

A terrible climate for homebuyers is to blame, said Neil Saunders, managing director of GlobalData.

"Over Home Depot's final quarter, we estimate that home sales in the U.S. dropped by 7.2% over the prior year. This continues to suck a lot of demand out of the market as home movers are, traditionally, big spenders on improvement," Saunders wrote.

Home Depot is still a well run company, he said.

"It is easy to see these results as gloomy, but the current deterioration is more of a reset than a serious problem," Saunders wrote. "Compared to 2019, annual sales remain up by 38.5% or $42 billion. So, this current plateau comes after a very steep climb."

Last week, the average long-term U.S. mortgage rate rose to its highest level in 10 weeks. The average rate on a 30-year mortgage rose to 6.77% from 6.64% a week earlier, according to mortgage buyer Freddie Mac. A year ago, the rate averaged 6.32%.

The increase echoes moves in the 10-year Treasury yield, which lenders use as a guide to pricing loans. Stronger-than-expected reports on inflation, a strong job market and the overall strength of the economy have stoked fears that the Federal Reserve will wait longer before it begins cutting interest rates.

When mortgage rates rise, they can add hundreds of dollars a month in costs for homeowners, limiting how much they can afford in a market already out of reach for many Americans. They also discourage homeowners who locked in rock-bottom rates two or three years ago from selling. The average rate on a 30-year mortgage remains sharply higher than just two years ago, when it was 3.92%.

For the three months ended Jan. 28, Home Depot Inc. earned $2.8 billion, or $2.82 per share. The Atlanta company earned $3.36 billion, or $3.30 per share, a year ago.

That topped the $2.77 per share that Wall Street was calling for.

Home Depot predicts fiscal 2024 sales growth of about 1%, including the 53rd week. It anticipates same-store sales will be down about 1% for the 52-week period.

The company also announced Tuesday that it was boosting its quarterly dividend 7.7% to $2.25 per share.